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Market Overview

Although there is a degree of consolidation taking over forex markets as traders pause to take stock after yesterday’s huge risk rally, there is still a mild risk positive bias in sentiment. The clear lead for Emmanuel Macron in the first round of voting in the French Presidential election has stoked the fires of risk appetite but can this move and momentum be sustained? The initial reaction today would suggest that traders are content with their initial reaction and not willing to look forward with confidence for the second round of voting. The jump higher in safe haven government bond yields such as Treasuries and Bunds shows little sign of unwinding. Equities have remained strong around the world overnight and are again supported in Europe early today. In forex markets there is more of a consolidation with little further direction on the euro, however it is interesting to see the yen again the big underperformer. Perhaps traders are now beginning to look ahead to the monetary policy announcements of the Bank of Japan and European Central Bank later this week.

Wall Street closed with strong gains last night with the S&P 500 +1.1% at 2374 (although this was nowhere near the gains seen in Europe), whilst Asian markets were also positive with the Nikkei +1.1%. European markets are mildly positive again today, once more with the CAC performing well. In forex there are mild gains on the euro and sterling, and the yen weakness suggests that risk appetite remains elevated. The Canadian loonie is under pressure after the US imposed anti-subsidy duties of around 20% on softwood lumber from Canada. Gold and silver are marginally weaker again today, whilst oil is higher although the recent trend has been for oil to suffer as the session has gone on.

Traders will have a fairly quiet morning with just the UK public borrowing data at 0930BST which is expected to show net borrowing of +£2.6bn for the month of March and could have an impact on sterling. The main focus will be on the Conference Board’s US Consumer Confidence which is at 1500BST and is expected to show a slight dip back to 122.5 (from last month’s 125.6). This would though still be an extremely strong number given last month’s was the highest reading since December 2000. The Richmond Fed’s Composite index is at 1500BST and will be interesting to see if it can sustain the strong of recent months (last month +22.0) as other regional Fed data has started to wane.

Chart of the Day – EUR/AUD

The outlook has changed significantly in the wake of yesterday’s breakout on the euro. Throughout most of 2017 Euro/Aussie has been struggling to breach the resistance around 1.4300 having tested the level in January, March and April. However the gap higher yesterday morning has opened the upside, with the move pulling sharply above all the moving averages. Furthermore the breakout became supportive on an intraday pullback which hit a low at $1.4313 before bouncing again. The daily momentum indicators are positive with the move, although the Stochastics are a bit cautious given the close back from the day high of 1.4437. How the bulls react to this breakout at 1.4300 in the coming days will be key. If they can sustain the breakout there will be increased potential for a test of initial resistance at 1.4470 and possibly again towards the December high around 1.4700. The initial signs are positive with today’s early moves. Under the neckline of 1.4300, the support of Friday’s low at 1.4167 is clearly now key, whilst the gap support is at 1.4260.

EUR/USD

The euro is consolidating the upside breakout formed in the wake of the market positive result of the first round vote in the French Presidential election. The long term downtrend has now been broken but also the move above the breakout resistance at $1.0850 will be a key level that traders look out for now. The old downtrend now becomes a basis of support and with support in the band above $1.0800 there is a strong range of support now to hold up any corrective slip on the euro. Continued trading above this range would confirm the change of outlook and with the momentum indicators positively configured, the bulls are in control. The hourly chart shows a settling of the market now with a reaction low yesterday at $1.0820 and resistance at $1.0877 initially protecting the spike high at $1.0935. A move above $1.0935 would now be key for the bulls.

GBP/USD

Cable continues to consolidate as once more the market has failed to push higher but also remains supported around the old $1.2775 breakout. Momentum is strongly configured but there is also a degree of waning impetus too, so the bulls will need to be careful to hold on to the support. I would continue to see corrections as a chance to buy on a medium term basis as I believe that the outlook has changed following the strong breakout last Tuesday. For now though, both daily and hourly charts are consolidating, with little real signal and the hourly chart showing a range now between $1.2760/$1.2870. The near term importance of the floor at $1.2760 is growing, but there is medium term support initially at $1.2707 but a stronger basis of support from the old February/March highs around $1.2600.

USD/JPY

The market has picked up off the lows of April and has rallied through the 50% Fibonacci retracement at 109.35 to challenge the resistance of the old support around 110.10. However, despite the gains posted on the day yesterday the bulls will have a battle to break clear of the overhead supply at 110.10. There is now a 150 pip basis of resistance from the early April trading that is a barrier to the gains. How the bulls cope with this will be key for the medium term outlook. The momentum indicators have picked up but for now are still reflective of a bear rally. The RSI and Stochastics need to push confidently above 50 and MACD lines gain traction to the upside. The early candle today is testing 110.10 and a close above this would be a good start for the bulls. The hourly chart is more positively configured for the momentum and the bulls have posted a low at 109.60 which will be a support marker now. Yesterday’s spike high at 110.60 is resistance with a minor lower high at 110.35.

Gold

Gold corrected with the improvement in risk appetite yesterday and this pulled the market back into the support band $1261/$1271. However, this band has held firm and despite the concerns of a sharper decline, there was some strength into the close. The near term resistance of the daily lows in the past couple of weeks means that there is a band of resistance $1275/$1281 now and this will need to be overcome for the bulls to regain some control. The momentum indicators have rolled over and a mild deterioration could turn into something far more corrective if this slip continues. That is why yesterday’s low at $1265.90 becomes increasingly key now. Losing this as support would be a move below the 21 day moving average (currently $1267) which would also question the bull control. The hourly chart reflects a near term corrective bias.

WTI Oil

The chart is becoming increasingly concerning as the bulls yet again lost control of a positive looking session as it closed with another disappointing loss after earlier gains. This is now the sixth consecutive negative close and the negative configuration of the momentum is progressing. The problem is that supports are being broken and there is further downside potential in the momentum with the RSI only just moving below 40 whilst the MACD lines have crossed lower and Stochastics remain in decline. On a day of such positive trading sentiment across financial markets this is a real concern for the bulls now. Closing below $49.60 adds to the negative impact and there is now a real possibility of a retreat towards the key March lows at $47.00. Initial support is now at $48.50. The hourly chart shows how old support around $50.20 has become new resistance and rallies are a chance to sell.

Dow Jones Industrial Average

A big move higher has broken through the seven week corrective downtrend and drastically improves the outlook. There is a big gap open now around 20,600 and it will be interesting to see how the bulls react to this breakout. Momentum is improving now with the RSI at a five week high, the Stochastics rising and the MACD lines close to crossing higher. The bulls now need to confirm the improvement with a breach of the first lower high which was the early April spike high at 20,887. A move above this resistance would confirm the bulls are returning to market prominence. The hourly chart shows old resistance is supportive now with 20,650 now a basis of support, whilst yesterday’s traded low at 20,723 is initial support.

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